You're right about the reason but wrong about the timeline: Jobs saw Windows XP Tablet Edition and built a skunkworks at Apple to engineer a tablet that did not require a stylus. This was purely to spite a friend[0] of his that worked at Microsoft and was very bullish on XP tablets.

Apple then later took the tablet demo technology, wrapped it up in a very stripped-down OS X with a different window server and UI library, and called it iPhone OS. Apple was very clear from the beginning that Fingers Can't Use Mouse Software, Damn It, and that the whole ocean needed to be boiled to support the new user interface paradigm[1]. They even have very specific UI rules specifically to ensure a finger never meets a desktop UI widget, including things like iPad Sidecar just not forwarding touch events at all and only supporting connected keyboards, mice, and the Apple Pencil.

Microsoft's philosophy has always been the complete opposite. Windows XP through 7 had tablet support that amounted to just some affordances for stylus users layered on top of a mouse-only UI. Windows 8 was the first time they took tablets seriously, but instead of just shipping a separate tablet OS or making Windows Phone bigger, they turned it into a parasite that ate the Windows desktop from the inside-out.

This causes awkwardness. For example, window management. Desktops have traditionally been implemented as a shared data structure - a tree of controls - that every app on the desktop can manipulate. Tablets don't support this: your app gets one[2] display surface to present their whole UI inside of[3], and that surface is typically either full-screen or half-screen. Microsoft solved this incongruity by shoving the entire Desktop inside of another app that could be properly split-screened against the new, better-behaved tablet apps.

If Apple were to decide "ok let's support Mac apps on iPad", it'd have to be done in exactly the same way Windows 8 did it, with a special Desktop app that contained all the Mac apps in a penalty box. This is so that they didn't have to add support for all sorts of incongruous, touch-hostile UI like floating toolbars, floating pop-ups, global menus, five different ways of dragging-and-dropping tabs, and that weird drawer thing you're not supposed to use anymore, to iPadOS. There really isn't a way to gradually do this, either. You can gradually add feature parity with macOS (which they should), but you can't gradually find ways to make desktop UI designed by third-parties work on a tablet. You either put it in a penalty box, or you put all the well-behaved tablet apps in their own penalty boxes, like Windows 10.

Microsoft solved Windows 8's problems by going back to the Windows XP/Vista/7 approach of just shipping a desktop for fingers. Tablet Mode tries to hide this, but it's fundamentally just window management automation, and it has to handle all the craziness of desktop. If a desktop app decides it wants a floating toolbar or a window that can't be resized[4], Tablet Mode has to honor that request. In fact, Tablet Mode needs a lot of heuristics to tell what floating windows pair with which apps. So it's a lot more awkward for tablet users in exchange for desktop users having a usable desktop again.

[0] Given what I've heard about Jobs I don't think Jobs was psychologically capable of having friends, but I'll use the word out of convenience.

[1] Though the Safari team was way better at building compatibility with existing websites, so much so that this is the one platform that doesn't have a deep mobile/desktop split.

[2] This was later extended to multiple windows per app, of course.

[3] This is also why popovers and context menus never extend outside their containing window on tablets. Hell, also on websites. Even when you have multiwindow, there's no API surface for "I want to have a control floating on top of my window that is positioned over here and has this width and height".

[4] Which, BTW, is why the iPad has no default calculator app. Before Stage Manager there was no way to have a window the size of a pocket calculator.